Futures Point to Full Week of Gains After Sharp Correction

US equity markets could end the week with a full house of gains as long as indices manage to hold onto the small gains being seen in futures ahead of the open.

This would also bring an end to two shocking weeks for equity markets that saw more than 10% quickly wiped off indices, the first time we’ve seen such a move since the start of 2016. While the prospect of higher yields and interest rates, combined with a surge in volatility, have been blamed for the decline, the rebound we’re now seeing reaffirms the belief that fundamentals are still strong which should prevent the situation deteriorating further.

There are a few economic releases that traders will likely be aware of as the week draws to a close. The UoM consumer sentiment reading is always an interesting release, given the importance of the consumer to the US economy. Building permits and housing starts will also be released ahead of the open on Friday. The bulk of companies may have already reporting numbers for the fourth quarter but there are still some more to come today, with 13 due to release earnings including Coca Cola and Kraft Heinz.

Sterling Resilient After Poor Retail Sales Figures

UK retail sales data for January was once again disappointing, providing further evidence that the post-Brexit squeeze on consumers is heaving an economic impact. While this could be partially reversed as sterling continues to rebound off its lows and wage growth picks up to offset higher living costs – assuming it does – we’re seeing few signs that the squeeze is easing and that’s being reflected in the spending figures.

The pound has actually been quite resilient to the data in the aftermath of the release. While it has since declined against the dollar, this has primarily been driven by the bounce in the greenback. The consumer squeeze and economic implications of it are already known and priced in, traders are far more concerned with wages and inflation and the impact this will have on interest rates, which makes the jobs report next Wednesday far more important.

GBPUSD Daily Chart

Bitcoin Struggling to Overcome Psychological Barrier

Bitcoin is once again threatening the psychological $10,000 barrier but as was the case on Thursday, it’s struggling to maintain its push above and once again finds itself falling slightly short. While a break above $10,000 should be no more significant than any other, it would appear to represent an end to the plunge in bitcoin that saw it fall around 70% from its mid-December highs and for this reason, it’s proving a difficult hurdle to overcome.

Bitcoin (CME) Daily Chart

Those expecting a similar response to breaking above $10,000 that we saw last time – a near 100% increase in less than three weeks – may also be disappointed. We’re not seeing the kind of euphoria that accompanied the break at the end of November when the speculative fomo trade was contributing greatly to its meteoric rise. The crash of the last couple of months has made this less of a one-way move and those that got burned may not be so keen to jump back in.

All of this is assuming that bitcoin will break above $10,000 which is far from certain when you consider the gradual – by its own standard – bounce from its lows. This could quite easily be another corrective move and the lows may be tested once again. The absence of a constant negative news flow is helping but whether this can be sustained is debatable.

The British pound continues to head higher this week. In North American trade, GBP/USD is trading at 1.4067, up 0.48% on the day. On the release front, there are no British events on the schedule. In the US, PPI gained 0.4%, matching the forecast. Core PPI also gained 0.4%, beating the estimate of 0.2%. Both indicators rebounded after declines in the previous month. Unemployment Claims climbed to 230 thousand, just above the estimate of 229 thousand. On Friday, the US releases key housing and consumer confidence numbers. The UK will release Retail Sales.

The pound has posted winning sessions every day this week, and has continued the upward trend on Thursday. GBP/USD has gained 1.7% this week, and punched above the 1.41 line earlier on Thursday. The pound posted strong gains on Wednesday, as US consumer spending reports were weaker than expected. Still, US fundamentals remain solid, as the US economy is showing strong expansion, the labor market remains at capacity, and inflation levels are moving higher. This has led some analysts to attribute the recent sag in the US dollar to technical factors rather than fundamental reasons.

With US inflation indicators pointing higher in January, the Fed will be reevaluating its projection for rate hikes in 2018. Currently, the Fed is planning three hikes this year, but that could change to four, or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion. The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

GBP/USD Fundamentals

Thursday (February 15)

8:30 US PPI. Estimate 0.4%. Actual 0.4%

8:30 US Core PPI. Estimate 0.2%. Actual 0.4%

8:30 US Empire State Manufacturing Index. Estimate 17.7. Actual 13.1

8:30 US Philly Fed Manufacturing Index. Estimate 21.5. Actual 25.8

8:30 US Unemployment Claims. Estimate 229K. Actual 230K

9:15 US Capacity Utilization Rate. Estimate 78.0%. Actual 77.5%

9:15 US Industrial Production. Estimate +0.2%. Actual -0.1%

10:00 US NAHB Housing Market Index. Estimate 72. Actual 72

10:30 US Natural Gas Storage. Estimate -193B. Actual -194B

16:00 US TIC Long-Term Purchases. Estimate 50.3B

Friday (February 16)

4:30 British Retail Sales. Estimate 0.5%

8:30 US Building Permits. Estimate 1.29M

8:30 US Housing Starts. Estimate 1.23M

8:30 US Import Prices. Estimate 0.6%

10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.4

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, February 15, 2018

GBP/USD February 15 at 11:30 EDT

Open: 1.3999 High: 1.4100 Low: 1.3995 Close: 1.4067

GBP/USD Technical

S1

S2

S1

R1

R2

R3

1.3809

1.3901

1.4010

1.4128

1.4271

1.4345

GBP/USD continues to break through resistance levels. On Thursday, GBP/USD inched higher in the Asian session. In European trade, the pair posted considerable gains. GBP/USD edged higher in North American trade but has given up these gains

1.4010 is providing support

1.4128 is the next line of resistance

Current range: 1.4010 to 1.4128

Further levels in both directions:

Below: 1.4010, 1.3901, 1.3809 and 1.3744

Above: 1.4128,, 1.4271 and 1.4345

OANDA’s Open Positions Ratio

GBP/USD ratio is showing gains in long positions. Currently, short and long positions are evenly split, indicative of a lack of trader bias as to what direction GBP/USD will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

The British pound has posted gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.3867, up 0.53% on the day. On the release front, consumer inflation beat expectations. CPI jumped 0.5%, above the estimate of 0.3%. Core CPI remained steady at 0.3%, edging above the forecast of 0.2%. consumer spending reports were dismal. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%. The sole British event, CB Leading Index declined 0.2%.

The US dollar has posted broad losses in the North American session, as CPI indicators were higher than expected. Concerns of high inflation was a catalyst for the market sell-off last week, and fears of resumption in the downward spiral are weighing on the dollar. What about the Federal Reserve? Currently, the Fed is planning three hikes this year, but that could change to four, or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion. The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

There were no surprises from British inflation numbers on Tuesday. CPI, the primary gauge of consumer spending, was unchanged at 3.0% in January. CPI has hovered around the 3% level since August, well above the BoE target of 2.0%. Wage growth has not kept up with the brisk clip of inflation, putting a further squeeze on the British consumer. This could dampen consumer spending, a key driver of the economy. High inflation is putting pressure on the Bank of England to raise interest rates, and last week the Bank said that it was considering faster and larger rate increases than it had projected back in November. Many analysts have circled May as the date of the next rate increase.

GBP/USD Fundamentals

Wednesday (February 14)

8:30 US CPI. Estimate 0.3%. Actual 0.5%

8:30 US Core CPI. Estimate 0.2%. Actual 0.3%

8:30 US Core Retail Sales. Estimate 0.5%. Actual 0.0%

8:30 US Retail Sales. Estimate +0.2%. Actual -0.3%

9:30 British CB Leading Index. Actual -0.2%

10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%

10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

Thursday (February 15)

8:30 US PPI. Estimate 0.4%

8:30 US Empire State Manufacturing Index. Estimate 17.7

8:30 US Philly Fed Manufacturing Index. Estimate 21.5

8:30 US Unemployment Claims. Estimate 229K

9:30 British CB Leading Index. Actual -0.2%

10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%.

10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, February 14, 2018

GBP/USD February 14 at 11:40 EDT

Open: 1.3893 High: 1.3972 Low: 1.3801 Close: 1.3867

GBP/USD Technical

S1

S2

S1

R1

R2

R3

1.3613

1.3744

1.3809

1.3901

1.4010

1.4128

GBP/USD inched higher in the Asian session but then recorded losses in European trade. The pair has posted sharp gains in North American trade

1.3809 is providing support

1.3901 was tested earlier in resistance. It is a weak line and could break in the North American session

Current range: 1.3809 to 1.3901

Further levels in both directions:

Below: 1.3809, 1.3744, 1.3613

Above: 1.3901, 1.4010, 1.4128 and 1.4271

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

The British pound has posted gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.3892, up 0.39% on the day. On the release front, British CPI was unchanged at 3.0%, edging above the forecast of 2.9%. There are no major events out of the US. On Wednesday, the US releases inflation and retail sales data. Traders should be prepared for some movement from the pair during the North American session.

There were no surprises from British inflation numbers on Tuesday. CPI, the primary gauge of consumer spending, was unchanged at 3.0% in January. CPI has hovered around the 3% level since August, well above the BoE target of 2.0%. Wage growth has not kept up with the brisk clip of inflation, putting a further squeeze on the British consumer. This could dampen consumer spending, a key driver of the economy. High inflation is putting pressure on the Bank of England to raise interest rates, and last week the Bank said that it was considering faster and larger rate increases than it had projected back in November. Many analysts have circled May as the date of the next rate increase.

A key factor in last week’s market turbulence was investor concern over more rate hikes due to inflation. Given this concern, it’s likely that the US CPI and Core CPI releases on Wednesday will be a market-mover. The markets will be glued to the inflation indicators, and if inflation numbers are higher than expected, we could see some volatility from the US dollar as well as the stock markets.

GBP/USD Fundamentals

Tuesday (February 13)

4:30 British CPI. Estimate 2.9%. Actual 3.0%

4:30 British PPI Input. Estimate 0.7%. Actual 0.7%

4:30 British RPI. Estimate 4.1%. Actual 4.0%

4:30 British Core CPI. Estimate 2.6%. Actual 2.7%

4:30 British HPI. Estimate 4.9%. Actual 5.2%

4:30 British PPI Output. Estimate 0.2%. Actual 0.1%

6:00 US NFIB Small Business Index. Estimate 106.2. Actual 106.9

8:00 US FOMC Member Loretta Mester Speaks

Wednesday (February 14)

8:30 US CPI. Estimate 0.3%

8:30 US Core CPI. Estimate 0.2%

8:30 US Core Retail Sales. Estimate 0.2%

8:30 US Retail Sales. Estimate 0.5%

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, February 13, 2018

GBP/USD February 13 at 12:00 EDT

Open: 1.3837 High: 1.3924 Low: 1.3833 Close: 1.3892

GBP/USD Technical

S1

S2

S1

R1

R2

R3

1.3613

1.3744

1.3809

1.3901

1.4010

1.4128

GBP/USD posted small gains in the Asian and European sessions. The pair continues to move higher in North American trade

1.3809 is providing support

1.3901 was tested earlier in resistance. It is a weak line and could break in the North American session

Current range: 1.3809 to 1.3901

Further levels in both directions:

Below: 1.3809, 1.3744, 1.3613

Above: 1.3901, 1.4010, 1.4128 and 1.4271

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Tuesday session. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Indices Remain Vulnerable After Entering Correction

US futures are trading slightly in the green ahead of the open on Friday, a day after stock markets once again tumbled leaving indices in correction territory.

As we saw on Thursday, this isn’t necessarily indicative of calm returning to the markets. The Dow recorded declines of more than 1,000 points for the second time this week, having never done so before, despite futures prior to the open being relatively unchanged on the previous days close.

Clearly there remains a lot of volatility and nervousness in the markets and I don’t expect this to ease up heading into the weekend. Stock markets will likely remain vulnerable to further shocks heading into today’s close and possible even next week. That said, with a 10% correction having now completed, I wonder whether investors will now start looking to buy the dips as the fundamental backdrop remains strong.

US Congress Passes Funding Bill Ending Brief Government Shutdown

On a more positive note, the House and the Senate approved a new funding bill in the early hours of Friday morning that will see the government through to 23 March and increase spending limits for two years, ending a showdown that came into effect overnight.

Markets haven’t been too concerned about the prospect of a shutdown since the start of the year despite two having now taken place so I don’t expect to see any boost now that a deal has been reached. This is merely just another self-inflicted risk that’s been temporarily averted.

Sterling Dips After Worrying Manufacturing Data

It’s a slightly quieter day in terms of notable economic events. The Canadian jobs data will be of interest given that the central bank has been relatively aggressively raising interest rates over the last six months. The UK GDP estimate from NIESR will also be of interest, given that the pound has continued to rise even as the economy experiences a notable slowdown.

The manufacturing and industrial production figures from the UK this morning showed another dip in December, with the latter in particular experiencing no year on year growth. Given that these are among the areas that have benefited since the referendum, it may be a minor concern. The pound dipped after the releases having failed to hold above 1.40 against the dollar in recent days.

The British pound has posted gains in the Thursday session, erasing the losses seen on Wednesday. In North American trade, GBP/USD is trading at 1.3919, up 0.29% on the day. On the release front, the Bank of England maintained interest rates at 0.50%, but hinted at earlier and larger rate hikes. In the US, unemployment claims dropped to a sparkling 221 thousand, well below the estimate of 232 thousand.

The BoE was in the spotlight on Thursday. The Bank made no changes to interest rates or quantitative easing, and both moves were unanimous (9-0). There was some surprise however, at the hawkish tone of policymakers, who said that interest rates could rise “earlier” and by a “somewhat greater extent” than they predicted at their previous meeting in November. Bottom line? We could see an interest rate in the first half of 2018, with analysts circling May as the most likely date. At the same time, the effect that Brexit is having on the economy is difficult to predict, and if the economic conditions worsen, the BoE could delay a rate hike.

It’s been a rough week for the pound, which is down 1.5 percent. The US dollar has posted gains against the pound and the other majors, after a massive sell-off on global stock markets on Monday. The sell-off was precipitated by strong US nonfarm payrolls and wage growth reports on Friday. This triggered concerns that higher inflation was on the way, which in turn would result in more rate hikes this year. Higher interest rates make the dollar more attractive for investors, at the expense of other currencies. If the turbulence in the stock markets continue, the pound could resume its downward movement.

GBP/USD Fundamentals

Thursday (February 8)

7:00 BoE Inflation Report

7:00 MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9

7:00 BoE Monetary Policy Summary

7:00 BoE Official Bank Rate. Estimate 0.50%. Actual 0.50%

7:00 BoE Inflation Letter

7:00 MPC Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9

7:00 British Asset Purchase Facility. Estimate 435B. Actual 435B

8:30 US Unemployment Claims. Estimate 232K. Actual 221K

10:00 US Mortgage Delinquencies. Actual 5.17%

10:30 US Natural Gas Storage. Estimate -116B. Actual -119B

13:01 US 30-year Bond Auction

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, February 8, 2018

GBP/USD February 8 at 12:20 EDT

Open: 1.3880 High: 1.4067 Low: 1.3846 Close: 1.3918

GBP/USD Technical

S1

S2

S1

R1

R2

R3

1.3744

1.3809

1.3901

1.4010

1.4128

1.4271

GBP/USD ticked upwards in the Asian session. In European trade, the pair posted slight losses but reversed directions and made strong gains in European trade. In the North American session, the pair posted slight gains but has changed directions and is moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

US Futures Flat After Uneventful Session in Europe

A sense of calm appears to be gradually returning to financial markets as we near the end of the week, with indices in Europe trading a little lower and US futures flat after ending Wednesday’s session in a similar manner.

While volatility in the markets has eased over the last couple of days, it has remained at very high levels which is probably a sign of the ongoing nervousness among investors which may leave markets vulnerable to further declines. Still, the European session has so far been relatively uneventful compared to the last few days which may be a positive sign ahead of the open in the US.

The sell-off on Monday was widely attributed to rising yields on the back of higher interest rate expectations in the US and Europe, although it was likely exacerbated by a combination of other factors, such as automated trading and fear of a broader correction given how long it had been since the last. It’s interesting then that while yields fell after the stock market sell-off, they have been creeping higher again and now find themselves not far from the levels they were at on Monday. Should we avoid another plunge in stocks, it would suggest that yields may have been the catalyst but ultimately, the selling that followed was driven by other factors, perhaps including a belief that a correction was overdue.

Will Carney Adopt Cautious Approach Given Market Volatility?

It will be very interesting to see what approach the Bank of England takes when it holds its quarterly press conference later on, given the recent market volatility. Central banks typically approach these events with incredible caution due to the ability of a seemingly harmless comment to cause excessive swings as traders pick apart everything that’s said.

Governor Mark Carney may have to be extra careful today then, particularly if the BoE is planning to lay the foundation for a rate hike this year, with an increasing number of people suggesting one will come in May. I remain unconvinced by this given the amount of economic uncertainty, soft economic data and the fact that inflation is believed to have peaked. Should the new forecasts contain an upgrade to the inflation outlook then perhaps this will nudge policy makers towards raising interest rates again.

GBPUSD Daily Chart

With no change in interest rates expected, traders will be paying very close attention to the new forecasts, as well as the press conference with Carney and his colleagues. If the BoE is considering a hike in May, you would expect it to start laying the groundwork for it today and at the meeting in March, which could provide additional upside pressure in UK debt and sterling, which is already trading at pre-referendum levels against the dollar.

Crypto Rebound May Be Short-Lived

The rebound in bitcoin is continuing today, with the cryptocurrency now up more than 40% from the lows posted two days ago. In any other asset other than cryptocurrencies, this kind of move would be staggering but instead this is just another day for bitcoin. It is also only a small rebound compared to the declines it’s seen over the last couple of months and may prove to be yet another dead cat bounce, albeit one that exceeds 40%.

Bitcoin Daily Chart

I’m not convinced yet that any rebound will be sustained as we continue to see a steady stream of negative news flow which has severely damaged sentiment in cryptocurrencies. The rally towards the end of last year was driven by the buzz and positive sentiment towards bitcoin and its peers – as well as a large speculative push from FOMO traders – and the reversal of this has equally weighed heavily on it. If that continues, I see no reason why it won’t be back below $6,000 in the not too distant future.